B-CU defaults on $17.5 million in bonds, while applications plummet

Thursday

New documents recently posted to a bond information website and others filed in court this week show that Bethune-Cookman University has defaulted on more than $17.5 million in bonds.

The default centers around money B-CU borrowed in 2010 to pay off old debts on campus buildings. Though B-CU was given 60 days to fix the problem, the university failed to do so and was found in default on those bonds for technical reasons. Further, documents show that when B-CU was asked to provide information that would have allowed bondholders to enter into a deal to avoid foreclosure, the school didn’t cooperate.

The documents also reveal other troubling signs at the university, including a steep drop in applications for fall enrollment, $153,000 in staff bonuses and other six-figure fundraising expenses that the president of B-CU’s alumni association called “questionable.”

This news comes as B-CU awaits word in June on whether the probation of its accreditation will be lifted, extended, or revoked — the latter a loss that could prevent students from qualifying for federal loans and jeopardize the historically black university’s future. The default also follows a recent independent audit that warned of “substantial doubt” as to whether B-CU could continue to operate to the end of the year.

B-CU officials declined to answer questions about the new revelations.

“The university has been actively engaged with all appropriate and responsible agencies and entities associated with returning Bethune-Cookman University to its rightful and proper standing,” B-CU spokeswoman Sara Brady said in an emailed statement. “We will continue to provide requested documentation to those entities as we advance through this process.”

The default

B-CU’s default concerns $23.8 million in higher educational facilities bonds originally issued in 2010 to help it pay off old debts on campus buildings. While the university has been making regular payments on the bond, the terms of the loan limited how much additional debt the school could take on.

A subsequent deal to borrow $85 million to build two new dorms in 2014 created a technical default. That second dorm deal — which will ultimately cost B-CU $306 million to pay off — has spawned numerous lawsuits, including one by the school that alleged former President Edison Jackson and other high-ranking university officials doled out hush money and engaged in corrupt practices to push the deal through.

The bond trustee, U.S. Bank National Association, tried to work things out with B-CU. But in a May 1 letter to bondholders, the bank said B-CU failed to turn over documents and information regarding its financial condition.

“To date, B-CU has failed to provide any of the requested documents and has largely ignored repeated attempts by the trustee to obtain this information,” the bank wrote.

Because of the default, the bank could require immediate repayment of the $17.5 million still owed by the university, but the bank’s letter said it didn’t intend to do that unless directed to do so by bondholders. Records show B-CU is due to make a $1.3 million payment in July and another $420,000 payment in January.

Bank officials declined to comment. On Monday, they filed a motion in Volusia County Circuit Court to intervene in a case in which Wells Fargo is suing B-CU and the developer of the newer dorm project. Based on that filing, it appears bondholders have their doubts about the university’s ability to repay its debts, which documents say now exceeds $113 million.

“B-CU has admitted the financial and accreditation challenges that it currently faces,” the court document says. “These circumstances pose a significant risk to the ability of B-CU to fulfill its obligation to the trustee and the holders of the bond.”

B-CU's precarious situation concerned Trudie Kibbe Reed, who served as its president from 2004 to 2012. Reed said under her tenure, all buildings were paid for in cash, and that the 2010 bond was used to pay off debts incurred prior to her arrival.

Reed said she took great efforts to ensure the university's finances remained sound, going as far as to challenge the board of trustees not to borrow any additional money.

Enrollment concerns

Documents from the bond website also show that spring enrollments at B-CU dipped by 12 percent, jeopardizing a key revenue stream the school would need to pull itself out of debt. Applications to the school also are down sharply.

Records show that through April 26, B-CU had received 7,495 applications for the fall semester from prospective students — 40 percent less than what it had received at the same point last year, and nearly 50 percent less than what it had received at the same point in 2017.

About three weeks remain to apply for the fall semester before the university’s June 1 deadline. However, despite the drop in applications, documents say B-CU still expects to enroll 3,800 students in the fall, a figure in line with last fall’s enrollments.

‘Questionable’ expenses

Other revelations from the bond documents include some large fundraising expenses incurred during fiscal year 2017, before B-CU was forced to cut positions and require unpaid employee furloughs. The administration’s expenses included $576,000 on consultants, $153,000 in staff bonuses, $110,000 on photography, $97,000 on entertainment and $59,000 on the Florida Classic, an annual Orlando-based football game between B-CU and its biggest rival, Florida A&M University.

B-CU National Alumni Association President Robert Delancy called the expenses “questionable” and said they led him to question why, with no capital fundraising campaign at the time, the university would pay more than half a million to fundraising consultants while also doling out employee bonuses.

Not all the findings were bad. Records from the bond site show that B-CU made more than $2.8 million off its newest dorms between July and April. Total revenues during that period exceeded $8.7 million, while interest on its debt — the greatest expense — was $3.9 million.

But, per the deal now under federal and state investigations, the university’s payments on the dorms are scheduled to escalate — reaching nearly $10 million a year by the end of the four-decade lease agreement. School officials have previously said they’ll never be able to afford what’s due. Complicating matters, the myriad lawsuits over the deal remain active and the university’s legal fees have exceeded $1 million.

That’s the situation incoming president Brent Chrite will face when he begins serving at B-CU on July 1. Despite the gloomy outlook ahead of B-CU's Saturday commencement ceremonies for more than 330 graduates, the school spokeswoman said that university expects its situation to improve.

“We cannot change previous leadership’s failures to fulfill its duty to meet the financial standard of care that is expected,” Brady wrote. “We are establishing a new leadership team and aggressively taking significant steps to restore financial integrity and stability to this historic institution.”

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